By Alec Christie, LWA Consultants Ltd, Yangon, Myanmar

The Ministry of Energy has responsibility for, among other things, oil and gas exploration, development and production in Myanmar. Under the Minister of Energy, there are three State owned economic enterprises and one Department. The Energy Planning Department is responsible for policy formulation, planning and co-ordination in the energy sector and the three State owned economic enterprises and their responsibilities are:

(i) Myanmar Oil and Gas Enterprise ("MOGE") is responsible for exploration/production and land transmission of oil and gas and to oversee Production Sharing Contracts entered into with foreign investors;

(ii) Myanmar Petrochemical Enterprise operates refineries and petrochemical plants; and

(iii) Myanmar Petroleum Product Enterprise is responsible for distribution of petroleum products for installation to the retail level.

Control of the petroleum and gas in the ground and within Myanmar’s territorial waters is vested in MOGE. As such, MOGE manages all the petroleum and gas operations in Myanmar and is the entity with which to negotiate and enter into product sharing arrangements for the exploration and development of Myanmar’s oil and gas reserves.


Foreign investment in Myanmar oil and gas generally follows the Indonesian model and is by way of a Production Sharing Contract ("PSC").

The major objectives of the Myanmar PSC are to:

(i) facilitate the exploration and develop Myanmar’s petroleum and gas resources in the shortest possible time;

(ii) provide the Government with a fair share of income from the production operations;

(iii) provide a reasonable rate of return to the oil company, taking into account geological, geographic and other risks;

(iv) provide an incentive to the oil industry to evaluate properly the petroleum/gas potential of the country and to encourage as much as possible the development of marginal fields; and

(v) provide for a system that can be easily administered within technical capabilities.

In addition to the incentives granted under the FIL and listed above, the following incentives are usually included in the terms of the PSC:

(i) exemption of duties on the import of petroleum/gas industry-equipment and materials;

(ii) no export duty is levied on the export of petroleum/gas;

(iii) negotiated rates of accelerated depreciation;

(iv) domestic market supply required is satisfied by taking production/priced at not too far below fair international market value; and

(v) a re-negotiation or "stabilisation" clause which allows necessary adjustments/amendments in the event of situations arising not envisaged in the original contract.


Below are highlighted some of the major provisions of the standard Off-Shore PSC. However, it should be noted that PSC terms are not rigidly fixed and are generally negotiable.

Commercial Discovery

Commercial Discovery is defined to mean discovery in the contract area of an accumulation or accumulations of Petroleum (which is defined to include both crude oil and natural gas and related condensates) which the Contractor decides to develop and produce.


The PSC provisions state that MOGE is responsible for management of the operations under the PSC and the Contractor is responsible to MOGE for the execution of such operations in accordance with the terms of the PSC. However, in practice, the management and carrying out of the operations are left to the Contractor. The Contractor must provide all the financial and technical assistance required and carry the risk.


The exploration period consists of an initial term of up to three years and may be extended by the Contractor for up to two (and possible more) one year extensions, provided that it has fulfilled its obligations under the PSC up until that date.

The development and production period commences on notice of Commercial Discovery and continues for at least twenty years from the date of completion of the development phase.


If the contractor is prevented from carrying on operations or gaining access to the contract area, the Contractor’s obligations become suspended until access is granted/the Contractor may again carry on operations. If the suspension of operations exceeds two years, the Contractor has the right to elect to terminate the PSC and be discharged from all further obligations.


If the Contractor elects to enter into the first extension of the Exploration Period, the Contractor must relinquish 25% of the Contract Area (excluding Discovery Areas and Development Areas) at the time of such extension.


The Contractor may at any time relinquish all or any part of the Contract Area and any such relinquishment is credited toward any subsequent relinquishment obligations.

Expenditure Commitment

Minimum expenditure commitments for the initial Exploration Period and any extension (including seismic data collection) are included. These are specific to each PSC and are as negotiated.

Discovery and Appraisal

The Contractor must notify MOGE thirty days after any significant discovery of Petroleum. If the contractor considers that a discovery merits appraisal, the Contractor is required to submit to MOGE, as soon as practicable, a detailed appraisal work program and budget.

A Development Plan must be prepared on the basis of sound engineering and economic principles and is to contain details and the extent of the proposed development area relating to the Commercial Discovery plus proposals relating to the spacing, drilling and completion of wells and facilities required for production and transport of Petroleum and use of Myanmar materials, products and services.

Cost Recovery

The Contractor may recover all operating costs and expenses up to and out of a maximum of 50%2 of all available Petroleum from the Contract Area; provided, however, that costs in respect of any development and production area shall be recovered only from Petroleum produced from such development and production area and costs of exploration shall be recoverable from "Available Petroleum" produced from any development and production area.

Production Sharing

Available Petroleum not taken for payment of royalty of or cost recovery is to be allocated as follows;3

Crude Oil



Up to 50,000 barrels per day



Between 20,001 and 100,000 barrels per day



Between 100,101 and 150,000 barrels per day



In excess of 150,000 barrels per day



Natural Gas



Up to 300 MMCFD



Between 301 and 600 MMCFD



Between 601 and 900 MMCFD



In excess of 900 MMCFD



Income Tax

The Contractor is required to pay tax, subject to any holiday or concessions granted under the FIL, on the Contractor’s net profit attributable to the Petroleum allocated to the Contractor (excluding cost recovery Petroleum).

MOGE will assist the Contractor to obtain proper official receipts evidencing the payment of the Contractor’s Myanmar income tax.


The Contractor must pay a royalty in cash or in kind, at the option of the Government, of 10% of the value of Available Petroleum from the Contract Area. The royalty is not recoverable from the Cost Petroleum.

Data Fee/Signature Bonus

The Contractor must within twenty days after Effective Date, pay a negotiated data fee/signature bonus, which is not recoverable from the Cost Petroleum.

Production Bonus

The Contractor is required to pay the following bonuses:4

(a) US$ 1,000,000 upon approval of the Development Plan;

(b) US$ 2,000,000 when average daily production reaches 10,000 barrels per day;

(c) US$ 3,000,000 when average production reaches 30,000 barrels per day;

(d) US$ 4,000,000 when average production reaches 50,000 barrels per day;

(e) US$ 5,000,000 when average production reaches 100,000 barrels per day; and

(f) US$ 10,000,000 when average production reaches 200,000 barrels per day.

Production bonuses paid are not recoverable from the Cost Petroleum.


"Arms Length Sales" mean sales on the international market in freely convertible currencies between unrelated sellers and buyers. "Reference Crude" means crude oil(s) produced in [place to be agreed] which is of comparable gravity and quality to the crude oil to be valued. "Reference Crude Price" means the average FOB point of export spot price for Reference Crude during the relevant time period.5

If at least thirty percent of all crude oil sales by the Contractor during the relevant quarter are arms length sales, fair market value for all shall be the price actually received by the Contractor in such sales. If less than thirty percent of all the crude oil sales by Contractor during the relevant quarter are arms length sales, the fair market value shall be the volume-weighted average of:

(a) the price actually received by the Contractor during the relevant quarter in Arms Length Sales; and

(b) the Reference Crude Price applicable for crude oil sold by the Contractor during the relevant quarter in non-arms length sales, adjusted to a Yangon point of export basis by adding the transportation cost of the Reference Crude from its point of export to the market in which Myanmar crude oil would normally be sold and subtracting the transportation cost from Yangon to that market.

Natural gas produced and sold during a quarter is to be valued at the weighted average net price received by MOGE and the Contractor for sales under any Natural Gas Sales Agreements entered into.

Natural Gas

Gas may be flared if processing, utilisation or reinsertion is not economical.

Should MOGE and the Contractor choose to undertake the processing of natural gas and the utilisation thereof, all costs for production and delivery and proceeds derived therefrom will be treated on a basis equivalent to that provided for crude oil.

In the event the Contractor considers that utilisation of natural gas is not economical, then MOGE may take and utilise such gas free of charge, all costs to be for the sole account and risk of MOGE.

Domestic Crude Oil Requirement

The Contractor’s obligatory share of the domestic market obligation will be in the proportion that the Contractor’s entitlement to Crude Oil bears to all crude oil produced in Myanmar, up to 20% of the crude oil allocated to the Contractor. The price MOGE pays the Contractor for such oil is the equivalent of US$ 1.00 per barrel.6

Employment and Training

The Contractor must endeavour to employ qualified Myanmar citizens to the maximum extent possible and the Contractor must spend a minimum of between US$ 25,000 to US$ 50,000 per year during the Exploration Period for purchase for MOGE of advanced technical literature, data and scientific instruments or to send a qualified Myanmar national to a selected accredited university.

Upon commencement of the development and production period for the first development and production area, the Contractor’s minimum expenditure commitment for training is between US$ 50,000 to US$ 100,000 per year.

Title to Assets

The Contractor’s physical assets acquired for the purposes of the Petroleum operation become the property of MOGE and are cost recoverable by the Contractor. The Contractor shall have the unrestricted and exclusive right to use such assets in the course of operations, free of charge during the term of the PSC.

This provision does not apply to assets leased by the Contractor or its Affiliates nor to assets owned by subcontractors or other parties.


The Contractor has the right to assign or otherwise dispose of all or any part of its rights and interests under this contract to an Affiliate or other parties with the prior written consent of MOGE, which consent is not to be unreasonably withheld. However, assignment may affect cost recovery.

Management Committee

MOGE retains all rights of management but recognises that the Contractor is responsible for the execution of the Work Programmes. The parties are to establish a Management Committee which has overall supervision and management of the Petroleum operations, with listed duties and responsibilities.


MOGE has the right to a 15% undivided interest in the rights and obligations of the Contractor under the PSC, which right generally lapses unless exercised within three months of the discovery of Petroleum.

Upon exercise of this right, MOGE must reimburse the Contractor an amount equal to 15% of the sum of operating costs which the Contractor has incurred. At the option of MOGE, the amount may be reimbursed either in the currency in which the relevant costs have been financed or by "payment out of production" of 50% of MOGE’s production entitlements.

Force Majeure

A standard force majeure provision is included, but may be modified if required.

Governing Law

The Laws of Myanmar apply to the PSC and "failing provisions of local laws, principles of international law shall apply".


Although the standard PSC term requires arbitration in Myanmar according to Myanmar Law, this may be negotiated to standard international arbitration under UNICTRAL Arbitration Rules, for example.

Banking/Foreign Exchange

The Contractor must supply all funds necessary for its operations under the PSC. However, the Contractor has the right to maintain foreign bank accounts without restriction and to freely receive abroad, remit abroad, retain abroad and use without restriction foreign exchange received from export and local sales of its share of Petroleum.

All payments by the Contractor to MOGE or the Government and all payments by MOGE to the Contractor are to be in US dollars at a bank in Myanmar or abroad, as specified by the recipient.


The Contractor is required to secure and maintain appropriate insurances as provided for under Myanmar Law and to require that its sub-contractors procure similar insurances.


The PSC is made and entered into in English.


The Contractor must maintain in confidence all data acquired from MOGE during the course of operations until MOGE agrees in writing to release the Contractor from its obligations.


1. For a discussion of the available investment incentives, investment structures, taxation regime etc in Myanmar, see A. Christie “Introduction to Doing Business in Myanmar”.

2. Usually 40% for On-Shore PSCs.

3. These shares are negotiable both at the time of entering into the PSC and before declaring Commercial Discovery.

4. The amount of and thresholds for bonuses are negotiable.

5. In practice, reference is made to Pratt’s Oil grams.

6. However, in practice, this can be negotiated up to 90% of a relevant fair market price.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.